‘Cost of Credit’ is the total amount of money that you are charged when borrowing from a credit provider. For loans, this is the additional amount, over and above the amount borrowed, that you pay, including interest, fees and charges over the life of the loan. There is no fee or charge when you take a Payment Break.
You don't need to extend your Loan Payment Break
You will need to decide what is the best way to repay the monthly payments that were suspended during your Loan Payment Break, as well as any interest that accumulated in those three months.
You will have recently received a letter outlining your options and the cost of each, in summary:
· It will cost you less in the long run if you pay it off bit by bit; however, your monthly loan repayments will increase.
· It will cost you more in the long run if you pay it all off at the end of your loan, as a result of extending the length of your loan term; however, your monthly repayments will increase less.
If you provide your email address within the online application, we may use this to contact you in future in relation to your payment break.
If you haven't received a letter from us about the expiry of your Payment Break you won't need to take any action at this time. Please do not go any further with this application unless you have received a letter.
Why is the Cost of Credit higher if you take a Payment Break?
As we suspended your monthly repayments for three months, the balance of your loan is higher at the end of your Payment Break than it would have been if you had continued to make your monthly repayments without a Payment Break.
Therefore, as your loan balance will be higher so will the 'Cost of Credit'. Interest is charged on your total loan balance, the monthly interest cost will be higher after your payment break.
How do I know how much higher the Cost of Credit is because of this Payment Break?
The initial ‘Cost of Credit’ is calculated when you first take out your loan and this amount is detailed within your original loan agreement.
However, the Cost of Credit can change over the life of your loan any time an adjustment is made to your loan.
Adjustments such as moving to a higher or lower interest rate will change the cost of credit over the life of your loan.
Taking a payment break or missing a payment can increase your cost of credit while making a higher monthly repayment or paying a lump sum to your loan can decrease your cost of credit.
If you don't understand any of the information in your pre-expiry letter, please request a call back.